Tony Mudd: A tax year end like no other for non-doms

February through to the end of March is always a busy time for advisers. There is plenty to discuss with clients, from the basics of maximising their Isa and pension contributions through to more sophisticated investments, such as enterprise investment schemes and venture capital trusts, and planning, such as assets relocation between spouses and civil partners.

This year is no different. Except, that is, for one group of individuals: non-UK domiciles. For them, this tax year end has particular significance. It has taken time, much consultation and deliberation but there is no doubt we are about to witness the most fundamental change to the taxation of non-domiciles for a generation.

It is debatable which will have the biggest impact, affect the most individuals or, if you are HM Revenue & Customs, raise the most revenue:

The extension of deemed domicile principle, now 15 out of 20 years, to income tax and capital gains tax

Non-domiciles born in the UK with a UK domicile of origin being deemed domicile at the point they become UK resident; or

Individuals who are deemed domicile being taxed on their worldwide income and gains on an arising basis.

Action plan

There is action impacted individuals can take but time is running out:

Any individuals who will become deemed domiciled, under the 15/20 rule, on 5 April may be able to rebase overseas assets for CGT purposes. As a result, they may wish to consider deferring liquidity events or sales of offshore assets

Individuals who will not be deemed domiciled should consider whether to be taxed on an arising basis for 2016/17 or a remittance basis. The decision will come down to the level of overseas income and gains, UK income and gains, the amounts remitted to the UK during 2016/17 plus the availability of overseas tax credits

Non-domiciles should review any remittances for 2016/17 as there may be scope for further remittances or, alternatively, it may be possible to take remedial action to reduce future liabilities. This can be achieved by transferring non-UK funds to the UK and investing in certain qualifying companies: business investment relief (although it is interesting to note the Government has announced the scope of business investment relief, that allows tax free remittances of amounts to be used for certain business investment, will be extended from 6 April)

Spouses or civil partners, where both are non-domiciled, could benefit from the reorganising of the ownership of overseas assets that generate unremitted income or gains such that they are held by one party only and, as a result, only one remittance based charge is due

Care should be taken where the non-domicile is using overseas income or gains as security for debt, as this could potentially give rise to a taxable remittance

Any clients with UK property held via offshore structures should review their position and likely UK inheritance tax exposure.

These issues and the taxation of non-domicile individuals are complex but significant savings can be made and, even once the 6 April has passed, there will still be opportunities.

For example, the aforementioned business investment relief, “cleansing” capital and income, offshore investment bonds for the tax- efficient remittance of funds to the UK and use of whole of life assurance in trust to deal with the increased IHT liabilities that will inevitably arise for such individuals, particularly those with UK property.

So while 6 April is not the be-all-and-end-all it is nevertheless a date that should be high in terms of priorities for non-domiciles and their advisers.

Tony Mudd is divisional director of tax and technical support at St James’s Place

Recommended

The latent pedant in me has big issues with the term “tax-free” when applied to dividends. Most dividends received by UK investors from UK companies have suffered a 20 per cent corporation tax liability. Corporation tax will soon fall to 19 per cent, and at a time so distant as to effectively be make-believe (after […]

Prime minister Theresa May has effectively watered down the Budget announcement of a tax rise for the self-employed following political outcry over the move. In the recent Budget, Chancellor Philip Hammond announced self-employed workers’ class 4 national insurance contributions will be increased by 1 per cent to 10 per cent from 2018, and to 11 […]

Despite the Conservative manifesto commitment to “no increases in VAT, National Insurance Contributions or income tax”, Chancellor Philip Hammond announced in his Budget this week that the rate of Class 4 NICs for the self-employed would increase from 9 to 10 per cent in April 2018 and by a further 1 per cent a year […]

This guide from Johnson Fleming will take you through the required communication and also give ideas for additional actions that will ensure your auto-enrolment project is a success. As well as highlighting what is required from a system to ensure it is up to the tasks, an overview of the following is also provided: data validation; data categorisation; employee communication; opt-in process; opt-out process; produce contribution schedule; contribution reconciliation process; upload of member data to pension provider; upload contribution to pension provider; manage salary sacrifice process; enrolment process; re-enrolment process; and management of increased employee queries.

Newsletter

Latest from Money Marketing

The European markets regulator has expressed concern UK finance companies could make use of loopholes between the UK and EU after Brexit, according to the Financial Times. Speaking at a conference in London, the European Securities and Markets Authority chair Steve Maijoor said this was one of the reasons Esma is seeking to directly supervise […]

Theresa May’s announcement from earlier today that she will step down as prime minister on Friday 7 June brought a new direction to deadlocked British political scene. Yet figures from the investment management sector say her resignation does not spell the end of uncertainty, which has been holding back investment decisions. Hermes Investment Management chief […]

The FCA’s Intergenerational Differences paper highlights the difficulties that people in their late 30s to early 50s face in saving for retirement. How can the industry improve their prospects? Grouping people according to age, gender, marital status and how wealthy they are is something product providers and advice firms do to tailor their services to […]

24th May 201912:17 pm

Comments

Leave a comment

Why register with Money Marketing ?

Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.